Trump Speaks on Reforming Drug Pricing – Now What?

Here is a recap of what Pres. Trump’s speech covered, and what his plan seeks to do – along with our analysis of implications for life sciences companies.

On Friday, May 11, Pres. Trump unveiled his long-awaited speech on drug pricing. The blueprint he offered proposed a wide-ranging and bold drug pricing plan, branded as “American Patients First.” Although the speech was often accompanied with colorful metaphors, there were plenty of reform elements to consider.

First, we should address the intent of the speech and what the administration is trying to solve for: high drug prices and rising out-of-pocket costs for consumers. In particular the administration's plan identifies several root causes it believes must be overcome:

Poor government negotiating

Excessive special interest influence

Slow regulatory approvals

Poor incentive structures

Exploitation of existing patent laws

Unfair global pricing and trade practices

Here is a recap of what Pres. Trump’s speech covered, and what his plan seeks to do – along with our analysis of implications for life sciences companies.

Reduce regulatory burdens so drugs can make it to the market quicker and cheaper, with specific reference to OTC and generics. Changing the regulatory approval process may affect the competitive landscape by creating opportunities for some and challenges for others. It is likely that significant changes will require legislative action. If this were to occur, it has the potential to drive a broader agenda for regulatory reform and perhaps speed new drug introduction through clinical development and trials. Broadly, this would benefit the entire industry.

Eliminate or reduce the impact of middlemen, with specific reference to pharmacy benefit managers. Pres. Trump’s focus on PBMs and associated drug rebate programs seems to be contrary to prevailing information on the value of PBM services. The general consensus seem to be that PBMs provide negotiating leverage resulting in lower prices, as well as improved care plan management resulting in lower prescription drug use. An argument could be made that reducing the impact of PBMs could in fact create more leverage for life sciences companies and in fact increase their pricing power as well as lead to poorly managed care plans resulting in the higher use of drugs. Our summation is that this should be watched carefully, but is unlikely to have a negative effect on life sciences companies and could result in the opposite actually giving them an opportunity for higher revenues.

End any Obamacare incentives that encourage higher drug prices. Revamping incentives appear to be geared toward emphasizing lower costs over higher value drugs or care. It will be more important that life sciences companies are able to promote the value of their product and educate the public, government, payers and providers on how their drugs improve patient outcomes and deliver benefits to the broader health system.

Provide Medicare Part D new tools to negotiate lower prices for more drugs, and make sure that Medicare Part D incentives encourage drug companies to keep prices low. The speech recommended increasing the government’s negotiating power specific to Medicare. It’s important to watch this closely and see the extent to which the government's negotiating power is increased. It would be concerning If it extends beyond Medicare into the private markets and reaches the point where it materially disrupts current market mechanisms.

Ban the Pharmacist Gag Rule, which punishes pharmacists for telling patients how to save money. This has the potential to lessen the sale of higher cost branded pharmaceuticals. Life Sciences companies might consider education campaigns that clearly articulate the value of their drugs over their less costly branded, OTC, generic, and biosimilar competitors.

Elimination of patent exploitation. This is an area to cautiously watch. It appears that the intent is to make change through presidential influence and perhaps selective legal action. Should the executive branch seek aggressive legal action or attempt to change patent law it would be concerning. This is viewed as highly unlikely as it would have far reaching effects across all industries and other international trading partners and likely require congressional cooperation. Nevertheless, legitimacy of patent life extension does give life sciences companies the opportunity to educate legislators and the public on the valid reasons for patent extension and how it benefits the public (i.e. new indications, better formulations).

Eliminate unfair trade practices by making sure trading partners pay a fair price for drugs. President Trump seemed suggest this would be implemented through presidential influence and better negotiation rather than changing of trade policy and law. This has the possibility of creating new opportunities for life sciences companies and might be an area worth active engagement with government entities. Addressing any imbalance from unfair pricing may create an opportunity to help architect better policy improve world health and perhaps drive increased revenue from other nations.

Lessen the influence of special interests with specific reference to healthcare lobbyists. It is unclear what progress will be made or the potential impact of this plan element.

Some of the potential changes can be enacted with an executive order while some will need legislative approval—staying close to detail policy intents and the mechanism for getting enacted is important. Should President Trump make material progress implementing his plan, in general, life sciences companies should benefit, as the intent of the plan appears to address system failures while continuing to reward innovation.

Despite the limited detail of Pres. Trump’s proposed blueprint and ambiguous time table, it does not appear that the proposed changes will fundamentally change the rules of competition. Instead, the focus appears to be on correcting system inefficiencies and limiting unfair influence, trade inequities, and regulatory burdens for life sciences companies. From the stock market’s performance the same afternoon, it appears that investors initially viewed Pres. Trump’s speech accretive to the drug industry.